European banks that settled litigation with US and other countries over wrongdoings such as benchmark rigging could trade at a premium to those peers that continue to face potentially heavy fines.

Banks that settled litigation with US and other countries over wrongdoings such as benchmark rigging could trade at a premium to those peers that continue to face potentially heavy fines, with some forced to raise fresh capital, Berenberg, the Germany-headquartered bank, has said.

Barclays and Credit Suisse have the “smallest buffers” in terms of paying potential fines, Berenberg said. The German bank has a “hold” recommendation on Barclays and a “sell” recommendation on Switzerland’s second largest bank. On the other hand, it said HSBC and UBS have the largest buffers and are still able to pay dividends. It estimates HSBC has a buffer of $21 billion, and UBS has a SFr7 billion ($7.49 billion) such level of protection.

There are at least 15 major issues that could “result in individual bank fines of more than €100 billion ($129.3 billion)”, it said in a report about the scale of such fines and the financial impact on banks. “On a per-bank basis, this adds up to 63 potential fine situations outstanding, of which 27 have been partially settled, while 16 cases have been settled,” the note said.

In light of its views, Berenberg said it is a buyer of HSBC, UBS and ING, while it remains a seller of Credit Suisse, Societe Generale, BNP Paribas, and Credit Agricole.

At a conference organised by this publication earlier in the summer, analysts said litigation against banks on a number of fronts was a drag on share price performance and a deterrent against holding certain types of financial stock.

The magnitude of fines – such as $8.97 million sum imposed by the US on BNP Paribas for multiple anti-money laundering lapses – shocked even seasoned observers of the market, prompting concerns of further heavy penalties. The issue has also become a transatlantic flashpoint, with countries such as France complaining about heavy-handed US tactics and using powers in an extraterritorial manner.

A problem for analysing the issue is that potential fines are impossible to estimate with “any degree of confidence”, Berenberg said. Such uncertainty will cap potential capital returns. “It is clear that regulators are asking banks to factor potential litigation and fines into stress tests. This is having an impact on terms of the amount of capital that banks are allowed to return to shareholders. We see this as another area where perceived excess capital is accruing to regulators not shareholders,” it continued.

The note examines the following investigation areas: Libor, foreign assets control; US mortgages, US Federal Housing Finance Agency; foreign exchange; credit defeault swaps; Swiss tax issues; payment protection insurance; interest rate hedging; rigging of ISDAFIX (derivatives); Madoff-related losses; retrocession fees; interchange fees; dark pools; precious metals; FERC (alleged energy market rigging).

The Berenberg report said banks differ markedly in how much information they disclose about potential litigation risks. For example, not all banks it surveyed mentioned a European Commission investigation into the credit defaults market in their annual reports.